VIX declined to make a double right shoulder to match the double left shoulder of a potential Head & Shoulders formation. The Moving Averages are so low that it may take a break of Long-term resistance at 10.93 to generate a buy signal. A breakout above the Ending Diagonal trendline suggests a complete retracement of the decline from January 2016, and possibly to August 2015. It appears that the Fed had its fingers on the scale all along, as many surmised.

(ZeroHedge)  For years, market watchers and Fed skeptics had warned that the record low volatility "blanket" that has fallen like a pall over the comatose market was the result of Fed actions, both direct or indirect. And while they mostly spoke metaphorically (although back in 2012 we observed a distinct shift in the VIX futs  when the current head of the Fed's trading desk, Simon Potter, replaced Brian Sack), we now have explicit confirmation that the Fed's "short vol" position appears to be rather literal.

SPX Throws Over its trading channel

SPX used its Cycle Top support at 2687.44 to throw over its Ending Diagonal formation. A decline beneath its Cycle Top suggests the rally is over and profits should be taken. Should it break Intermediate-term support and the trendline at 2642.10, a sell signal may be generated. Should that happen, the decline may continue through the month of January.  

(Reuters) - The S&P 500 and Nasdaq were on track to post their best weekly gain in more than a year on Friday, as U.S. stocks extended their new year rally even after December U.S. job growth came in weaker than expected.

The Dow and S&P 500 also were set to register their strongest start to a year since 2013.

U.S. stocks this week have been adding to momentum from last year driven by a series of strong economic reports from across the globe. The passage of a major U.S. tax overhaul last month helped to fuel late-year gains, and the S&P 500 ended 2017 up 19.4 percent.

NDX soars above Cycle Top resistance

The NDX found a base at Short-term support at 6410.72 to rally above Cycle Top resistance at 6528.58 in a throw-over move that may complete the rally.  A decline beneath the lower Diagonal trendline at 6400.00 and Intermediate-term support at 6257.12 may produce a sell signal.    

(Fortune)  In recapping the stock market’s strong performance in 2017, the bulls invariably laud the tech titans as the force that, more than any other, propelled the S&P 500 and the Nasdaq to record after record. It’s chiefly the power of these world champions, the Wall Street crowd crows, that will make 2018 another double-digit winner for shareholders.

For the tens of millions of Americans who rely on index funds, however, the tech explosion may well prove the just the opposite—a heavy drag on their future returns.

High Yield Bond Index pushes higher

The High Yield Bond Index pushed higher all week to start off the New Year. The rally is substantially extended, but a break of the Cycle Top at 191.79 may tell us the rally is over.  A sell signal may be generated with a decline beneath the lower Diagonal trendline at 181.00.

(Bloomberg)  It’s too late in this market cycle to bet on high-yield bonds, according to Morgan Stanley Wealth Management.

So, the $2 trillion money management arm is completely slashing junk bond allocation. True, tax cuts are expected to inject fresh momentum into high-flying stocks, but the boost may be short-lived and mask balance-sheet weaknesses, Mike Wilson, chief investment officer, wrote in a note distributed Wednesday.

UST retests the neckline

The 10-year Treasury Note Index slid back down to the neckline of a potential Head & Shoulders formation. The Cycles Model now suggests a potential rally through late January that may be quite strong. Should the rally materialize, the minimum target may be mid-Cycle resistance at 127.19 or higher in a panic situation.  

(CNBC)  U.S. government debt yields rose as investors bet on a stronger economy despite a weaker than expected jobs report.

The Labor Department reported that the economy added 148,000 jobs in December, missing expectations.

The yield on the benchmark 10-year Treasury note rose to 2.473 percent at 11:54 a.m. ET, while the yield on the 30-year Treasury bond rose to 2.81 percent. Bond yields move inversely to prices.

The Euro closes at Cycle Top resistance

The Euro challenged its Cycle Top resistance at 120.30, closing within a tick. The Euro is gaining strength and should be moving higher through the end of January.      

(Reuters) - The dollar gained on Friday after a brief dip as investors reckoned a weaker-than-expected U.S. December non-farm payrolls report would not deter the Federal Reserve from raising interest rates multiple times this year.

U.S. nonfarm payrolls increased by 148,000 jobs last month. Economists were forecasting job gains of 190,000. Employment data for October and November data were revised to show 9,000 fewer jobs created than previously reported.

EuroStoxx  rises through resistance

The EuroStoxx 50 Index snapped back through the Broadening Wedge trendline and Long-term support at 3534.42, negating a sell signal.  The new Master Cycle low was made on Tuesday, allowing the rally to take place. The period of strength that accompanies this snap-back may be over this weekend.    

(CNBC)  European stocks closed higher on Friday, as investors monitored euro zone inflation data and U.S. nonfarm payrolls.

The pan-European Stoxx 600 closed provisionally up 0.8 percent, extending gains from the previous session with almost all sectors and major bourses in positive territory. Gains in financials pushed Britain's FTSE 100 to another record high on Friday, while Switzerland's blue-chip SMI notched an all-time high.

The Yen consolidates beneath resistance

The Yen continued its consolidation beneath Intermediate-term resistance at 88.75. Sideways consolidations are indicators of a continuation of the current trend.  The Yen may rally back through the support/resistance cluster to new highs through the month of January.  There may be a lot of stored up energy waiting to be put to use.  

(Bloomberg)  Hiromichi Shirakawa, vice chairman and chief Japan economist at Credit Suisse, discusses Japan's inflation target and his outlook for Abenomics. He speaks on "Bloomberg Markets: Asia."

Nikkei has a blowout week

The Nikkei appears to be making a final surge to the upper trading channel trendline after consolidating for the past two months. A break beneath the Cycle Top and Short-term support suggests the rally may be over and may produce an aggressive sell signal. Confirmation comes at the crossing of the lower Diagonal trendline at 21000.00.

(NikkeiAsianReview)  The Nikkei Stock Average climbed 949 points in the first two trading days of 2018, as the appetite of retail investors trading on margin recovers thanks to growth in undervalued bank stocks used as collateral.

One retail investor who trades under the name Yunagi spent Thursday and Friday building up a full position in stocks with margin trades. His move was prompted by the paper-profit-loss ratio for margin trading, which is approaching levels seen during the early days of Abenomics.

U.S. Dollar hesitates

USD hesitates in its decline beneath Intermediate-term support/resistance at 93.20. There may be a brief bounce over the next couple of days, then the Cycles Model calls for a a probable continuation of the decline through the end of January with a likely termination near “point 6.”  

 (Xinhua) -- The U.S. dollar traded mixed against other major currencies on Friday as investors were digesting a batch of economic data from the country.

U.S. total nonfarm payroll employment increased by 148,000 in December, the Labor Department reported Friday, missing market expectations of 190,000. The unemployment rate was unchanged at 4.1 percent, the lowest level in 17 years.

In December, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to 26.63 U.S. dollars. Over the year, average hourly earnings have risen by 65 cents, or 2.5 percent.

Meanwhile, the U.S. Department of Commerce announced Friday that the goods and services deficit was 50.5 billion dollars in November, up 1.6 billion dollars from October.

Gold may be topping off its rally above 1300.00

Gold began the New Year by topping off its rally above 1300.00.  The anticipated strength may be wearing thin.  A strong reversal is building.  Time to take profits while you can.    

(Bloomberg)  On a day when blizzard warnings blanketed the U.S. east coast, gold trading in New York got off to a stormy start.

In the 15 minutes ended 8:30, gold-futures volume spiked on the Comex in New York, with contracts equal to more than 2.8 million ounces of the metal changing hands. That’s almost eight-fold the 100-day average volume for that time of day, according to data compiled by Bloomberg.

Crude closes above  its Cycle Top.

Crude rallied above its Cycle Top at 60.78, closing above it. Oil’s period of strength may have been extended, but the next three weeks may be much lower, according to the Cycles Model.  

(CNBC)  Oil traders should expect prices to pullback by at least 15 percent over the coming months, according to a senior analyst at Commerzbank.

Oil prices rose to their highest levels since mid-2015 on Wednesday amid political unrest in Iran, despite analysts saying there was little risk of supply disruption from OPEC's third largest producer. And while long positions have skyrocketed, short positions — or bets that prices will fall — have dipped to their lowest levels since February in recent weeks

Shanghai Index surges above Intermediate-term resistance

The Shanghai Index surged above Intermediate-term resistance at 3353.95, closing above it. The weekly period of strength may have already worn off.  The Cycles Model suggests that the decline may resume through the end of January. The potential for a sharp sell-off rises as the next levels of support are breached.   

(ZeroHedge)  Something odd is going on in China. On one hand, the PBOC has been soaking up excess liquidity from the market like a drunken sailor, and after not conducting reverse repos for 10 consecutive days, it has reduced the excess liquidity level by 510bn yuan in the latest week as existing open market operations matured, and roughly half that in the week prior.

On the surface, this would suggest a sharp tightening in monetary conditions, and yet precisely the opposite is taking place: over the past week, instead of rising short-term rates - the traditional indicator of tighter conditions in China - yields on Chinese short-dated instruments have tumbled. Putting the move in context, 1Y yields have plunged nearly 20bps in the first week of 2018, the biggest weekly slide since June 2015.

The Banking Index surges toward its Cycle Top

BKX may have used support at its upper Diagonal trendline to extend its rally toward its Cycle Top at 111.30.  The period of strength may only have a few days left.  A decline beneath the Ending Diagonal trendline at 105.00 suggests the rally may be over.  A further decline beneath Intermediate-term support at 101.89 or the trendline at 100.50 may give a sell signal. If the Orthodox Broadening Top formation is correctly identified the next move may be beneath mid-Cycle support at 82.93.

(NorthmanTrader)  Debt is irrelevant and matters not. It’s different this time. That’s the message from politicians, markets and participants. Tax cuts pay for themselves (they do not), leverage doesn’t matter (it does) and the increased costs of servicing the debt as a result of rising rates will be offset by imaginary real wage growth to come (they won’t). But the calmest market waters in history continue to keep these illusions alive as asset prices keep levitating from record to record.

Debt does matter and it was ironically left to Janet Yellen to voice any remnant concerns about the sustainability of debt to GDP: “It’s the type of thing that should keep people awake at night” she said.

(Forbes)  With the future of the federal leveraged lending guidelines in flux, investment bankers are already preparing for a lighter-touch regulatory environment. Many have started pushing their compliance teams to allow aggressive deals in leveraged finance, as the stars begin to align for a loosening of post-crisis guidelines intended to curb excessive risk-taking, numerous leveraged finance bankers told Debtwire.

The guidelines, introduced in the wake of the financial crisis, put limits on regulated banks’ ability to participate in the riskiest corporate lending deals. For example, the guidelines cap pro forma leverage at 6x, with additional requirements around how quickly debt needs to be paid down.

(YahooFinance)  The Consumer Financial Protection Bureau is famous for pursuing enforcement actions that slap the wrists of financial institutions that misstep — like Wells Fargo’s $100 million fine for making millions of fake accounts in consumers’ names. But they are also one of the biggest repositories for consumer complaints.

The CFPB complaint database, which began compiling grievances in 2011, lets consumers get timely responses from companies they’re having problems with and has been a tool the Bureau has used to identify areas of misbehavior. Complaints are posted if left unaddressed by a company after 15 days, or are published with a response if one comes in.

The database is public, and anyone can download the 431-megabyte spreadsheet of information — unless the current director Mick Mulvaney, appointed by President Trump, decides to cease making it available.